Wallace (Wally) Forbes, CFA, was President of the Forbes Investors Advisory Institute (FIAI) from 1993 through 2014, the division of Forbes Media that publishes the Forbes Special Situation Survey, Forbes Investor and is responsible for the Forbes participation in the Forbes/CFA Institute Investment Course published by Wiley. He hosts an interview program with leading money managers that appears on the Investing section. Mr. Forbes, the youngest son of B. C. Forbes, founder of Forbes Magazine, served as Vice President and Director of Forbes, and President of Forbes Investors Advisory Institute, from 1964 to 1969. After leaving the company, he served as president and CEO of Standard Research Consultants, formerly a subsidiary of Standard and Poor’s Corporation. He subsequently was a founder and partner-in-charge of Benchmark Valuation Consultants, which merged with KPMG Peat Marwick in 1987. Both firms specialized in the business valuation field. He has also served as a director of both public and private companies and of educational and other non-profit organizations. He rejoined Forbes in 1996, once again as President of FIAI. He has authored or co-authored articles on the valuation of business enterprises and related subjects that have appeared in various business and professional publications, including Harvard Business Review, Business Horizons, Monthly Digest of Tax Articles, Management World, Family Advocate, YPO Enterprise, Chief Executive, and The Business Valuation Handbook. After graduating in 1949 from Princeton University with a degree in civil engineering, he served for five years in the U.S. Navy Civil Engineer Corps and was assigned to Seabee battalions (Navy construction battalions) in various overseas locations. After leaving the Navy, Mr. Forbes attended the Harvard Business School, and, upon graduation, was appointed a research associate in investment management and a member of the faculty. Mr. Forbes is a member of the New York Society of Security Analysts and holds the Chartered Financial Analyst designation.

2 Stocks With As Much As 100% Upside

Joel Salomon: SaLaurMor started operations a little over a year ago. SaLaurMor manages long/short equity strategies, focused on financial institutions with a specific concentration on insurance companies and asset managers. We have a very differentiated approach to investing. We analyze insurance companies’ balance sheets, regulatory filings, and risk-based capital requirements. Then we look at different economic scenarios to come up with our fair value of the insurance company or other financial institutions.

We analyze insurance companies and other financial institutions from a long-term investing point of view, where we define long term as more than 12 months. We use a proprietary balance sheet analysis with a focus on creditworthiness. We tend to have a longer-term time frame because insurance companies and other financial institutions do not generally move to their economic fair value in a very short period of time.

Wally Forbes: People are always looking for good investment ideas.

Salomon: Fortegra Financial Corporation (NYSE: FRF) is a diversified insurance services company. It provides insurance-related services, distribution services and warranty services to its clients, which are banks, credit unions, insurance companies and other financial services companies in the United States.

It also had previously owned a wholesale brokerage and an online platform for reinsurance, which it sold for $85 million in December 2013. And that’s an important part of the story because it now operates in one segment, which combines the payment protection, business processing and outsourcing services. It specializes in protecting lenders and consumers from disability, death and other events that could impair their ability to repay their debts. They also provide warranty and service contracts for mobile phones, for furniture, major appliances and, importantly, for auto and motor club solutions to consumers.

Forbes: That’s quite a broad field of services that they cover.

Salomon: Exactly.

Forbes: And who do they sell to? Primarily major companies or smaller companies?

Salomon: Not the major companies. It’s small, mid-size enterprises across the United States. And they provide the warranty for mobile phones and appliances to individuals.

Forbes: A very broad field of services.

Salomon: Right. Basically FRF is a way to play in a broadening economic recovery in the United States. We just heard this week that industry-wide auto sales, annualized for June, were close to 17 million — which is the highest pace since July of 2006. They provide auto warranty services and emergency roadside assistance.

With more and more cars getting sold, there are more and more memberships that are sold by consumer finance companies, auto finance companies, credit unions, and banks. So the opportunity as auto sales continue to grow is for fairly significant growth across these various business lines.

Forbes: They’re selling to individuals here when they talk about the auto services?

Salomon: Right. Their coverage is sold by consumer finance companies, auto finance companies, and the sales are made to individuals. If you have a car and want to receive a benefit for towing roadside assistance they provide financial reimbursement, motorist aid — in addition to any benefits received from other sources or roadside assistance memberships. They own a company called Continental Car Club.

These businesses are generally fee-based businesses. We expect FRF to generate more than $40 million in EBITDA (earnings before interest, taxes, depreciation and amortization) in both 2014 and 2015. In fact, they gave guidance in March for 7% to 9% revenue growth, and an EBITDA margin of 32% to 34% for 2014.

What’s really interesting is that, as I mentioned earlier, they sold that wholesale brokerage and online platform, for $85 million. They used those proceeds to pay down their debt significantly. So their debt to EBITDA is just over one times (1x). So they’re very under levered. There are a lot of service companies that may have debt as high as three or four or five times debt to EBITDA. I like conservative financial companies that are not highly levered — and they are no longer highly levered.

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